GST on Real Estate- Analysis of Notifications issued on 29.03.2019

ANALYSIS OF THE NOTIFICATION ISSUED BY CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS ON 29.03.2019

DEFINITION AS PER RERA

CARPET AREA- ‘carpet area’ means the net usable floor area of an apartment, excluding the area covered by the external walls, areas under services shafts, exclusive balcony or verandah area and exclusive open terrace area, but includes the area covered by the internal partition walls of the apartment.

“COMPLETION CERTIFICATE” means the completion certificate, or such other certificate, by whatever name called, issued by the competent authority certifying that the real estate project has been developed according to the sanctioned plan, layout plan and specifications, as approved by the competent authority under the local laws;

“REAL ESTATE PROJECT” means the development of a building or a building consisting of apartments, or converting an existing building or a part thereof into apartments, or the development of land into plots or apartment, as the case may be, for the purpose of selling all or some of the said apartments or plots or building, as the case may be, and includes the common areas, the development works, all improvements and structures thereon, and all easement, rights and appurtenances belonging thereto;

TAXABILITY ON SUPPLY OF CONSTRUCTION SERVICES- WITHOUT INPUT TAX CREDIT

Notification No- 03/2019 dated 29.03.2019

Construction of

a. Affordable Residential Apartment in a Residential Real Estate Project taxable @ 1.50%.

“AFFORDABLE RESIDENTIAL APARTMENT” residential apartment in a project having carpet area not exceeding 60 square meter in metropolitan cities or 90 square meter in cities or towns other than metropolitan cities and for which the gross amount charged is not more than forty five lakhs rupees. Gross amount charged by promoter shall include preferential location charges, development charges, parking charges, common facility charges.

RESIDENTIAL REAL ESTATE PROJECT– the term “Residential Real Estate Project (RREP)” shall mean a REP in which the carpet area of the commercial apartments is not more than 15 per cent. of the total carpet area of all the apartments in the REP.

b. Residential Apartments other than Affordable Residential Apartment in Residential Real Estate Projects taxable @ 7.50%.

Residential Apartment means apartment intended for residential use.

c. Commercial Apartment in Residential Real Estate Project taxable @ 7.50%.

Commercial Apartment means apartment other than Residential Apartments

Comments: If the commercial apartment is not constructed in Residential Real Estate Project, then concessional tax rate shall not be applicable. Hence the project in which commercial apartments carpet area is more than 15% of the total carpet area, the reduced rates shall not be applicable

d. Affordable Residential Apartment in Real Estate Project taxable @ 1.50%

c. Residential Apartment other than Affordable Residential Apartments in Real Estate Project taxable @ 7.50%

i) By a promoter

ii) Commences on or after 01.04.2019 or in an Ongoing Project

iii) Promoter has not exercised to pay the tax at the rates (ie) and (if) [OPTION TO PAY THE TAX WITH AVAILMENT OF INPUT TAX CREDIT]

iv) Except where entire consideration has been received before the issue of completion certificate or first occupancy whichever is higher.

v) Deduction of towards Land Value being one-third value allowed.

CONDITIONS TO BE COMPLIED FOR OPTING TO PAY TAX @ 1% OR 5% AS APPLICABLE-

i) The above tax shall be paid in cash by debiting the Electronic Cash Ledger

ii) No Input Tax Credit has been Taken. ITC has been availed to the extent prescribed in Annexure- I (Real Estate Project) and Annexure- II (Residential Real Estate Project)

iii) Payment of Tax shall be made debiting Electronic Cash Ledger/ Credit Ledger computed as per Annexure- I (Real Estate Project) and Annexure- II (Residential Real Estate Project) equivalent to ITC attributable to construction of Project.

iv) Developer shall pay the tax on the supply of construction of Apartment to the Landowner where in the consideration is in form of construction of Apartments

v) Landowner shall be eligible to claim the above ITC provided he supplies such apartment before the issuance of Completion Certificate.

vi) 80% of value of Input/ Input Services shall be received from the Registered Suppliers other than-

a. Services by way of grant of Development Rights

b. Long Term Lease of Land -Upfront Payment in form of Salami, Development Charges

c. FSI

vii) Tax on Input and Inputs Services discharged under Reverse Charge shall be treated as purchased from Registered Persons

viii) In case the procurement from Registered Suppliers fall short of 80%, tax shall be paid by promoter on the value of 18% on reverse charge basis. Further where cement is procured from Unregistered Persons, tax under reverse charge shall be paid at the applicable rates under reverse charge

ix) Shortfall of tax being 80% to be procured from the Registered Suppliers shall be paid by the end of the Financial Year but not later than the month of June following the end of the Financial Year.

x) Tax under reverse charge on Cement procured from the Unregistered supplier shall be paid in the month in which the same is procured.

xi) The Promoter shall maintain Project Wise account of Inward Supplier from Registered and Unregistered Supplier

xii) In respect of the ITC not availed, the same is required to be reported in GSTR 3B in “Ineligible Credit”

TAXABILITY ON TRANSFER OF DEVELOPMENT RIGHTS ON OR AFTER 01.04.2019 ON CONSTRUCTION OF RESIDENTIAL APARTMENTS

Vide Notification No- 04/2019- Central Tax dated 29.03.2019 amendment has been made to Notification No- 12/2017 dated 28.06.2017

1. Services by way of Transfer of Development Rights

2. Transfer on or after 01.04.2019

3. For Construction of RESIDENTIAL APARTMENTS by Promoter

4. Sale of Flats intended for Buyer

5. Except where entire consideration has been received before the issuance of completion certificate of first occupation whichever is earlier.

6. Amount of GST Exemption shall be GST Payable multiplied by carpet area of Residential Apartment divided by carpet area of residential and commercial apartment.

Tax Rate by Landowner- NIL

Taxability on Developer- Tax shall be payable on the un-booked flat on the date of Completion Certificate.

Tax Amount payable shall be GST payable multiplied by carpet area of residential project remaining un booked divided by total area of the residential apartment on the date of issuance of completion certificate.

Tax shall be payable @ 1% in case of affordable housing and 5% in case of residential apartment other than affordable housing.

Point of Payment of Tax: Taxability shall arise on the date of the completion certificate or first occupancy whichever is earlier.

COMMENTS: Above taxability applicable to residential apartment only and not the commercial apartments

POINT OF TAXATION ON DEVELOPMENT RIGHTS/ LONG TERM LEASE

Notification No- 06/2019- Central Tax Rate dated 29.03.2019

CATEGORY OF PERSON

1. Promoter receives the Development Rights or FSI on or after 01.04.2019. Consideration payable by him is in form of

a. Construction services of residential or commercial apartments in projects

b. Or any other form including Cash

2. Promoter receives long term lease of Land on or after 01.04.2019 for the construction of residential project. Consideration payable by him is in form of

a. Upfront Amount called as Premium, Salami, Cost, Price, Development Charges or by any other name.

Nature of Consideration

1. Consideration in form Construction Service of Commercial or Residential Apartment in Project for supply of Development Rights of FSI

2. Monetary Consideration for supply of Development Rights of FSI

3. Upfront Payment for Long Term Lease of Land

4. Supply of Construction Service against consideration for supply of Development Rights of FSI

Point of Taxation-

Date of Issuance of Completion Certificate by Competent Authority or First Occupation whichever is earlier.

AMENDMENT TO SECTION 9(3)- TAXATION UNDER REVERSE CHARGE

Notification No- 05/2019- Central Tax (Rate) dated 29.03.2019 makes further amendment to Notification No- 13/2017- Central Tax Rate dated 28.06.2017

Nature of Supply

1. Supply of Development Rights or Floor Space Index for construction of a Project by Promoters

2. Upfront Amount called as Premium, Salami, Cost, Price, Development Charges or by any other name.

Supplier- Any Person

Recipient- Promoter

Analysis:

1. The above notification applicable to both Residential and Commercial Projects

2. The above notification applicable to both Ongoing Project as on 31.03.2019 and Project which would commence on or after 01.04.2019.

3. Agreement executed on or before 31.03.2019 for transfer of Development Rights shall also be subject to Reverse Charge in respect of the projects whose completion certificate will be issued on or after 01.04.2019.

AMENDMENT TO SECTION 9(4)- TAXATION UNDER REVERSE CHARGE

Notification No- 7/2019- Central Tax Rated dated 29.03.2019- Notifying the class of persons liable to Reverse Charge u/s 9(4) of CGST Act, 2017

Promoter Registered Person has been notified as Category of Persons liable to pay tax under Reverse Charge pursuant to Section 9(4) of the CGST Act, 2017.

Category of Supply liable to tax under Reverse Charge for procurement from Unregistered Person

1. Supply of goods and services or both [other than services by way of grant of development rights, long term lease of land or FSI]. Value of such supply shall be the shortfall of minimum value of goods or services or both required to purchased by promoter for the construction of the Project till the issuance of completion certificate.

2. Supply of Cement. Value of the Cement shall be the shortfall required to be purchased by the promoter for the construction of the project till the issuance of the completion certificate.

3. Capital Goods falling under any Chapter to the Schedule to the Custom Tariff Act, 1975

Comment:

Liability to pay tax under Reverse Charge shall be applicable only in case where developer selected the option to pay the tax without availment of Input Tax Credit.

The developer who chose to pay the tax with availment of Input Tax Credit is not required to discharge the tax under reverse charge

Supply of Development Rights are taxable under Reverse Charge u/s 9(3) as notified vide Notification No- 05/2019- Central Tax Rate dated 29.03.2019 irrespective of the fact whether the Landowner is registered or unregistered.

TAX RATE ON UNREGISTERED SUPPLIES TO DEVELOPERS

Vide Notification No- 8/2019 Central Tax Rate dated 29.03.2019 has amended the Notification No- 2/2017 Central Tax Rate dated 28.06.2017

Central Tax @ 9% and State Tax @ 9% has been prescribed by amendment to the Notification No- 1/2017 dated 28.06.2017

Nature of Supply- Supply of any goods other than cement and capital goods by an unregistered person to promoter for the construction of project.

Reverse Charge- Tax shall be payable by the Promoter as the recipient of the goods under Section 9(4) of CGST Act, 2017.

TAXABILITY ON SUPPLY OF CONSTRUCTION SERVICES- WITH INPUT TAX CREDIT

Construction of

a. Apartment in Ongoing Project taxable @ 12%. Deetails as follows

i. a civil structure or any other original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awas Yojana

ii. a civil structure or any other original works pertaining to the “In-situ redevelopment of existing slums using land as a resource, under the Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana (Urban)

iii. a civil structure or any other original works pertaining to the “Beneficiary led individual house construction/enhancement” under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana;

iv. a civil structure or any other original works pertaining to the “Economically Weaker Section (EWS) houses” constructed under the Affordable Housing in partnership by State or Union territory or local authority or urban development authority under the Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana (Urban);

v. a civil structure or any other original works pertaining to the “houses constructed or acquired under the Credit Linked Subsidy Scheme for Economically Weaker Section (EWS)/Lower Income Group (LIG)/Middle Income Group-1 (MIG-1)/Middle Income Group-2 (MIG-2)” under the Housing for All (Urban) Mission/Pra-dhan Mantri Awas Yojana (Urban); ]

vi. a single residential unit otherwise than as a part of a residential complex;

vii. low-cost houses up to a carpet area of 60 square metres per house in a housing project approved by competent authority empowered under the ‘Scheme of Affordable Housing in Partnership’ framed by the Ministry of Housing and Urban Poverty Alleviation, Gov-ernment of India

viii. low cost houses up to a carpet area of 60 square metres per house in a housing project approved by the competent authority under—(1) the “Affor-dable Housing in Partnership” component of the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana; (2) any housing scheme of a State Government

ix. low-cost houses up to a carpet area of 60 square metres per house in an affordable housing project which has been given infrastructure status vide notification of Government of India, in Ministry of Finance, Department of Economic Affairs vide F. No. 13/6/2009-INF, dated the 30th March, 2017;]

x. a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment; or

Construction taxable @ 18%

i) Complex, Building, Civil Structure or part thereof including

a. Commercial Apartments– shops, offices, godowns by a promoter in Real Estate Project other than Residential Real Estate Project

b. Residential Apartment in ongoing projects, other than affordable residential project in respect of which the promoter has exercised the option to pay the state tax on construction of apartments

Conditions

i. Exercise the Option in Form IV.

ii. If the conditions is not exercised in Form IV, it would be deemed the option has been exercised

iii. Invoice can be issued during the period 01.04.2019 to 10.05.2019 before exercising the Option.

Insertion of Item (va) after Item V in Serial No-3

(va) Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, other than that covered by items (i), (ia), (ib), (ic), (id), (ie) and (if) above, supplied by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of affordable residential apartments covered by sub- clause (a) of clause (xvi) of paragraph 4 below, in a project which commences on or after 1st April, 2019, or in an ongoing project in respect of which the promoter has not exercised option to pay central tax on construction of apartments at the rates as specified for item (ie) or (if), as the case may be, in the manner prescribed therein

Tax Rate: 12%

Conditions:

i) carpet area of the affordable residential apartments as specified in the entry in column (3) relating to this item, is not less than 50 per cent. of the total carpet area of all the apartments in the project

ii) the apartments shall be the value of similar apartments booked nearest to the date of signing of the contract for supply of the service specified in the entry in column

SUPPLY OF SERVICES OTHER THAN SUPPLY OF DEVELOPMENT RIGHTS

Serial No 38 shall be inserted after the Serial No-37 to the Notification No-11/2017 Central Tax Rate dated 28.06.2017.

Supply of services other than services by way of grant of development rights, long term lease of land (against upfront payment in the form of premium, salami, development charges etc.) or FSI (including additional FSI) by an unregistered person to a promoter for construction of a project on which tax is payable by the recipient of the services under sub- section 4 of section 9 of the Central Goods and Services Tax Act, 2017 (12 of 2017), as prescribed in notification No. 07/2019- Central Tax (Rate), dated 29th March, 2019, published in Gazette of India vide G.S.R. No. _, dated 29th March, 2019.

Tax Rate- 18%

Analysis: Supply of Development Rights are taxable under reverse charge for the un booked flats in residential project. However in commercial projects the same is taxable @ 18%.

REVERSAL OF INPUT TAX ON STOCKS IN HAND- SECTION 18(4)

Vide Notification No- 9/2019- Central Tax Rate dated 29.03.2019 amendment to Notification No- 2/2019- Central Tax Rate dated 07.03.2019.

Notification No- 2/2019- Central Tax Rate deals with taxation on Composite Dealers engaged in supply of Services

The Registered Person who has availed the Input Tax Credit however now opts to pay the tax under this notification, shall pay an amount equivalent to credit of Input Tax in respect of Inputs held in stock, semi-finished and finished stocks and on capital goods.

The payment shall be made by debit of the Electronic Credit Ledger or Electronic Cash Ledger.

The Balance of Input Tax Credit if held shall lapse.